Congressional Look At Pension Borrowing Serves Public Well

WASHINGTON — Amid the daily drone of politically inspired Congress bashing from the White House, there was a little-noticed example this week of two congressional committees' serving the public well.

This other face of Congress quietly doing work important to millions of Americans deserves to be recognized. The credit goes to the committees for publicizing an increasing and unhealthful trend by state and local governments to raid public employee pension funds to balance their budgets.

Whether Congress can prohibit the practice is problematic, but a lot more people should be alert to the implications of what is going on as a result of the efforts of the House Committee on Aging and a joint economic subcommittee, which held a joint hearing on the problem this week.

Facing deficits that in some cases reach into the billions, governors and legislatures have been going to pension funds to provide a quick fix to their budget woes. But while they are papering over one problem, they are creating another.

"By either delaying or cutting contributions to public pension funds, changing the actuarial assumptions that determine contribution levels, taking loans, or outright withdrawing money from the funds, state and local governments are jeopardizing the future viability of these hard-earned retirement funds," said Rep. Edward R. Roybal, D-Calif., chairman of the committee on aging.

It's not just public workers who could be hurt when states engage in the same kind of budget sleight of hand that has gone in Washington for a decade.

"By implementing these plans we are increasing taxes for future generations," said Anthony J. Solomon, treasurer of Rhode Island. "How will these programs be funded tomorrow, when it is our children's and their children's burden? We are simply mortgaging their future."

No one knows the full extent of the problem because there is no mechanism for gathering and analyzing comparative statistics. In Illinois, Comptroller Dawn Clark Netsch said the state has funded only 57.8 percent of its pension liability.

In the past two years, at least 18 states, including

Connecticut, have dipped into state pension systems or are considering it.

The largest raid apparently came in California, where the legislature approved Gov. Pete Wilson's proposal to withdraw $1.6 billion from two public pension plans to help close the state's $14.3 billion budget deficit. The plan is being challenged in court.

Gov. Jim Edgar of Illinois also faces a court test over his order to transfer $21 million from the state pension fund to the general revenue fund. And in Connecticut, the Service Employees International Union has filed a grievance over Gov. Lowell P. Weicker Jr.'s plan to reduce pension contributions by $520 million over three years. More recently, the governor has proposed delaying $70 million in payments to the teacher retirement fund.

Arnold M. Schneider, executive director of the American Association of Classified School Employees, is worried. "We are witnessing the disintegration of retirement savings trust funds through diversion and expropriation," he said. "It's not the same as the savings and loan crisis. It's worse."

Schneider's concern is well placed. "If a public sector plan is persistently underfunded, the day is likely to come when plan assets fall short of benefit checks," said Olivia S. Mitchell, professor of labor economics at Cornell University.

What's more, the states do not have a lot of time. Mitchell's research shows that three-quarters of all state employees with pensions are 41-45 years old, compared with fewer than half of those in the private sector. Beyond that, public employees tend to retire earlier. More than one-third of public employees are expected to retire before age 60, compared with fewer than 8 percent of workers in private business.

"What this means is that the demands on the public sector pension will come sooner than many realize," Mitchell said.

The committees heard a number of proposals for congressional action. But Rep. Fortney H. "Pete" Stark, D-Calif, chairman of the joint economic subcommittee, said that beyond exposing the problem and embarrassing the states, there may be little Congress can do. "It's a scary proposition," he said, "but I don't want to end up causing more problems than we can solve."

Even if they do no more, the committees have given the nation's 14.7 million public employees and millions more taxpayers plenty to chew on. Here is one more nugget from Netsch, a common-sense Midwesterner:

"Underappropriated pension contributions are like unpaid credit card bills. The liability does not go away because you choose to not pay the bill when it is due. You still owe the unpaid balance, plus interest."